The sites to which steroid-receptors bind on the MMTV LTR are positioned on the surface of nucleosome B in a phased array of nucleosomes. Hormone activation of the MMTV promoter leads to active displacement of nucleosome B in vivo. A disomic structure composed of the A and B nucleosomes can be reconstituted in vitro, with the octamer cores accurately positioned. NF1, a requisite component of the MMTV initiation complex, is excluded from the disomic structure, in contrast to the glucocorticoid receptor. Thus, nucleosome displacement is necessary during transcription activation to permit binding of the initiation complex. This DNA replication-independent process is the first example of active nucleosome displacement initiated by a known regulatory protein, resulting in chromatin remodelling that provides altered access to a second set of DNA-binding proteins. Under conditions in which sodium butyrate induces histone hyperacetylation, the MMTV promoter is converted from an inactive state with the potential to be activated to a state that is incompetent to undergo receptor-mediated activation, suggesting a role for histone acetylation in chromatin remodelling. In addition, although both glucocorticoid and progesterone receptors bind to the same DNA consensus element and activate transcription from transiently transfected plasmids containing these elements, only glucocorticoids can activate transcription from similar constructs that are assembled into stable chromatin. These results indicate that a chromatin template containing specifically positioned nucleosomes is an active participant in transcriptional activation, and that differential activation of transcription by glucocorticoids and progestins may be mediated by chromatin.